One of the more curious carve-outs in the new financial reform law is an exemption that shields so-called "small" banks from the oversight of the new Consumer Financial Protection Agency.
Specifically, the Dodd-Frank Wall Street Reform and Consumer Protection Act gives the new agency extensive power and authority to regulate consumer financial products, but only for banks that have more than $10 billion in assets. Banks that are smaller than that threshold won't be subject to the additional federal oversight.
The exemption is curious because large banks don't enjoy a monopoly on small print. Indeed, plenty of "small" banks have been just as guilty as their larger competitors of financial products and services that aren't entirely healthy for consumers or that have fees and conditions that aren't all that well disclosed. And large and small banks can -- and have -- failed with equal zeal.
The exemption is also curious because a bank that has less than $10 billion in assets isn't necessarily "small." Many banks have less than $5 billion or less than $1 billion or even less than $100 million in assets. But is a bank that has, say, $9.5 billion or $9 billion or $7 billion in assets really "small"? Sure, it's smaller, relatively speaking, but remember that $10-billion figure is billions, not millions.
The consequences of this curious exemption have yet to be seen, but we might hazard a few guesses that:
- Small banks could offer more aggressive and esoteric banking products.
- Small banks could be less safe if they specialize in those high-risk products.
- Medium banks might restrict their own growth to stay smaller than the threshold.
- Big banks could (okay, will) marshal lobbyists to try to block the agency's restrictions on their products.
- Consumer advocates could lobby to lower or eliminate the agency's threshold, so all customers of all banks would be equally protected.
The tradeoff for banking customers remains to be seen as well: Will it be bigger banks, conservative products and higher fees, smaller banks, riskier products and lower fees or some other combination?
What's your prediction?